The heart of a competitive advantage in an organization is a culture of confidence.  Such an culture emerges in companies that have developed success patterns to a point of such sustainability that the “flywheel effect” has kicked in, as Jim Collins describes in his book Good to Great.  There is momentum and your people know it; they know it because they are in the midst of it–in fact, they are the ones making it happen.  Such a business has a competitive advantage because a culture of confidence is not “copyable.”  It is an outgrowth of having all the human elements working in a unified, passionate fashion within a company.  Think Disney. Think Apple. Think any great company.

The best word to describe the mindset of the workforce within organizations that have developed such a culture is stewardship.  The dictionary describes a steward as “a person who acts as the surrogate of another or others.”  In business, it implies that employees act in the best interest of owners; more than that, they do the things ownership would do because they think like owners.  They think like owners, in part, because they are treated like owners–not because they necessarily own stock but because they have some kind of stake in the company’s success and a shared value system.

Organizations that adopt a stewardship approach to managing their people nurture trust and confidence in their employees by focusing more on  desired outcomes and results than methods and behaviors.  They communicate standards and values, vision and strategy, roles and expectations.  Then they communicate a sense of partnership in the way they share value with those that create value.

Such businesses inherently understand that they can’t use incentives as a tool to manipulate behavior or to reinforce methodology.  It’s not that they ignore those things, rather they recognize that pay is not the way to enforce the spirit of stewardship they want to engender.  To use incentives to “force” certain behaviors is the ultimate act of mistrust.  It undercuts the core sense of personal responsibility and accountability that a workforce must achieve if the “flywheel effect” is going to be realized.  Mistrust erodes a culture of confidence and pay, done improperly, creates mistrust.

To take it one step further, companies that have a culture of confidence don’t even think in terms of rewards as incentives.  Instead, they set up short and long-term value sharing agreements with their associates and consider their relationship to be a partnership, not employee or employer.  Value sharing is about reinforcing outcomes, not forcing behavior.  It’s about recognizing the contribution of all stakeholders in an organization’s success through effectively crafted pay programs.  It’s about stewardship not just employment.

So, as you consider where you are in your journey towards a future company that is not just good but great, avoid eroding your culture of confidence through any act of mistrust–especially as you build rewards strategies. Instead, use them to reinforce the line of sight you want to create between vision, strategy, roles, expectations and pay.

To learn more about a specific type of value sharing program that will encourage the stewardship mindset just discussed, tune into our next webinar broadcast entitled: What Think Ye of Phantom Stock–Does it Work?

Let’s face it, business life is accelerating in its complexity.  Denial won’t help us overcome it; we must embrace it and learn to manage it.  As some organizations attempt to “rein it in,” they find themselves making things worse rather than better.  A recent Harvard Business Review article makes the point this way:

“In and of itself, this complexity is not a bad thing—it brings opportunities as well as challenges. The problem is the way companies attempt to respond to it. To reconcile their many conflicting goals, managers redesign the organization’s structure, performance measures, and incentives, trying to align employees’ behavior with shifting external challenges. More layers get added, more procedures imposed. Then, to smooth the implementation of those ‘hard’ changes, companies introduce a variety of ‘soft’ initiatives designed to infuse work with positive emotions and create a workplace where interpersonal relationships and collaboration will flourish.”

Our experience has been similar when we are engaged to help companies design incentive plans.   Value sharing arrangements such as bonus programs, phantom stock, profit pools, performance unit plans, etc.  should bring greater clarity not complexity.  Too often, business leaders want their rewards programs to achieve more than they are designed to and become a substitute for performance management. As a result, they add layers of metrics and measures that are intended to micro manage the results the company wants employees to achieve.

If a value sharing program is going to offer more clarity than complexity, what is that it should make clear?  Here’s our list:

• It should make clear that the company considers the employee a key partner in the achievement of its growth goals.
• It should reinforce the company’s business model and the strategy employed to roll it out to the marketplace.
• It should help clarify the role of a given employee in the business model and strategy.
• It should make clear the outcomes the employee is responsible for within that role.
• It should create line of sight between the employee’s personal financial vision and the company’s growth goals and vision.

If a company will use compensation as a clarifier and reinforcer of “what’s important,” it will take a big step towards better managing the complexity that inevitably will continue to grow.

You have smart people working for you.  For the most part, they believe in the company and where it’s headed.  Because they are thoughtful and intelligent, they are willing to learn about the role you want them to play in creating value for the business.  The better ones had options when they chose to work for your company.  The best ones have other options now. 

So, if  what I describe above is familiar to you–if you have one or more person like this working for you right now–what would they say to you about compensation if they were honest about their expectations? 

In the course of our work with clients, we have interviewed hundreds of just such individuals within successful businesses.  In composite terms, I’d now like to share what we’ve heard.  I’ll categorize the responses in three groups and then lay out the expectations of those we’ve spoken to in the first person; speaking as if I were that smart, thoughtful employee who did and does have options.

• Sustainable Cash Flow–”I recognize that my experience and skill level merit a certain level of pay.  I’m not stupid; I’ve done some research, asked around and I know what most people in my position earn. I’ve built a certain lifestyle around that expectation.  Now I just want to know that as long as I perform–and the company continues to do well–I’ll have enough guaranteed and incentive income to keep me and my family in our ‘world’ and still be able to plan for the future.  As a result, it would be helpful to know what philosophy the company has going forward for how much of my earnings will be guaranteed and how much upside potential there will be through “value sharing” if I help the company meet its growth targets.  To the extent some of my compensation  will be ‘at risk,’ I’d like to be clear on the measures being used to determine payouts and know that those metrics are based on something I have control over.  I would also favor something that isn’t ‘all or nothing’; if we achieve a superior result, it would be nice to know even more would be available.  That would be meaningul to me–and seem fair.”
•  Security– “There are certain risks that could change my world pretty quickly.  If a member of my family becomes seriously sick or injured, or if I die or become disabled, I need some means of protection.  Likewise, I need to be able to plan properly for retirement, education for my kids and so on.  I certainly don’t expect the company to foot the bill for every type of risk I’m trying to plan for or protect against.  At the same time, I recognize the business is in a unique position to use the size of its workforce as leverage to obtain certain benefits and that’s it’s also in the company’s best interest that its key people not be too vulnerable. So, I hope I can have some flexibility in my benefit options that will allow me to address my circumstances in as customized a manner as possible.  I’m willing to share in the cost of doing so–I just want to make sure consideration is being given to the range of issues that could impact both me and the company if proper planning isn’t done.  Here are some of the things the ideal arrangement would include:
• • Medical Insurance—options for PPO, HMO, catastrophic coverage (dental, vision, long-term care options are a plus and having some options even at my cost would be helpful in this regard)
  • Life Insurance—options for additional coverage at a group rate are ideal; some kind of permanent coverage the company pays for while I’m employed is better (I’ve heard of things such as ‘split dollar’ arrangements where the company gets its money back when I leave)
  • Disability Coverage—this one worries me the most; so it would be great if there was either a group plan or individual coverage that replaces my income if I’m not able to work; again, I’m willing to share in the cost of this but I also recognize it takes the company off the hook for having to decide what to do if I am out with some kind of long-term condition
  • Retirement Plan—a 401(k) is great, I’d just like to make sure you’re looking out for me in the investment options I’m given and that you are making sure  hidden costs are being squeezed out so I can maximize my benefit.  If the company makes a contribution to the plan, it tells me they value a long-term relationship with me and want to help me plan for my future
  • Supplemental Retirement Plan—it’s a bummer that the government restricts my contributions to the 401(k) plan; what I put in is based on what people earning less than me put in.  As a result, having a supplemental plan to allow me to set aside more for the future and on a tax favored basis would be ideal.  I know many companies provide this through some kind of deferred compensation arrangement”
•  Wealth Accumulation—“It’s nice having a retirement plan, but it’s not what I mean by having a wealth accumulation opportunity.  I’m talking about having the means to share in the ‘wealth’ I help create in the business.  If my commitment of time and talent means the company achieves something it wouldn’t have achieved without that contribution, is it not fair to want to participate in the value I help generate?  It seems like a win/win to me if it’s set up properly.  I don’t care whether I get equity or not—I just want to know that there is a long-term mechanism in place that makes the achievement of the owners’ vision a financially meaningful event for me.  I’d be motivated by that and it would seem like more of a partnership arrangement if I can  participate in something like that.”

So, there you have it.  That’s what your best employees are thinking and what they’d like to say if given the chance.  Now you know.  You’re welcome.

For more information on this topic, view our webinar entitled: “What Your Employees are not Telling  You about your Current Rewards Programs.”

Engagement is one of the Holy Grails in business.  Every organization seeks it in its workforce.  Most company leaders can’t define it, but they know it when they see it…and they know it’s what’s missing when the business fails to reach its potential.  Engaged employees are like fuel to company growth and those who aren’t make everything move in slow motion. 

For an employee to become “engaged,”  a company must address what I refer to as “The Three ‘Cs’.”  They go like this. 

Engagement emerges when an employee feels:

1. Compelled–the business has a compelling future and the employee sees how his unique ability can contribute to its fulfillment.  This is about shared vision and values.
2. Clarity–leadership gives the employee a clear understanding of the business model and strategy what will fulfill the vision, what role he has in that plan and what’s expected of him in that role, and how he will be rewarded if he fulfills those expectations.
3. Connection–the employee feels a sense of partnership with company owners.  Whether or not equity is shared, he  understands there is a philosophy about value creation and value sharing that is fair.  As a result, all stake holders feel connected.

Well, if that’s what it takes to secure an engaged employee, what will the result look and “taste”  like once it’s achieved?  In my experience, companies that nurture engagement end up with employees that manifest that quality in each of  three ways:

1. Focus–more time is spent on the “best” results that can be achieved, not just good or better.  There is an outcome rather than a task orientation that is evident. The employee “gets” what result the company is looking for and displays a sense of stewardship about it.
2. Commitment–company leaders see that the employee has taken ownership of the future in a similar way that shareholders have.  It is apparent that it is meaningful to him for the company to achieve its vision because he knows what it will mean to him personally.
3. Shared Purpose–an engaged employees demonstrate a contribution ethic that extends beyond his specific role in the company.  It is a manifestation of the shared purpose he has with co-workers, other  teams or departments and with ownership.  This means he behaves in a way that demonstrates his understanding of  the interdependent nature of the independent roles throughout the organization.  He understands that today he may depend on someone else, but tomorrow that same associate may depend on him to achieve a desired result in which all have a stake.

In my experience, companies that use compensation as the strategic tool it is intended to be see rewards as one means of smoothing if not reinforcing the path to engagement.  For example,  they offer employees a long-term incentive plan that fosters the shared purpose indicated above.  It’s payout metrics are tied to a combination of company-wide performance, team or department performance and individual performance.  Such an approach nourishes a culture of contribution–because all have a financial stake that evokes a kind of “moral” bond with their associates.  If I fail in my stewardship, it doesn’t just impact me and if you slow down, I am also affected.

Leadership, then, should examine its current practices through a kind of reverse engineering process.  It starts by asking whether the workforce is currently, as a whole, manifesting outward signs of engagement (focus, commitment, shared purpose).  If not, it should then ask what can be done to promote a compelling vision, create greater clarity and enable the sense of connection and partnership that are foundational to engagement.  In the process, it should be sure to ask itself whether current compensation practices are more likely or less to promote the outcomes just discussed.

It is realistic to anticipate a fully engaged workforce?  It is.  I’ve seen it first hand.  For one example, see my blog entitled: “What a Competitive Advantage Sounds Like.”  The concept is further developed in another blog posting entitled: “Compensation and Trust.”  Finally, to learn how to get from an entitlement mentality to engagement, view our recent webinar entitled: “What to do When your Employees Act Entitled.” 

Pay can either be an asset or a liability to a company.  Stated another way, it can either drive growth or hinder it– fuel performance or diminish it.  Is that placing too big a burden on compensation to produce results?  I don’t think so.  In fact, my experience and observation has been that most businesses don’t set high enough expectations for their rewards programs.  The evidence is they don’t invole compensation in other strategic discussions.  The result is there is little to no link established between pay and the key success measures the company needs to reach.

To change this outcome a company must alter how it makes compensation decisions.  Here I would like to suggest five of the key issues a business must include and successfully address in its decision making process if it wants to drive better results in the execution, productivity and performance of its people.  Here are the five presented in the form of questions to be answered:

1. How can we reinforce our business model through the way we pay our people?  Implied in this decision is a company’s ability to clearly articulate its business model and distinguish it from it’s business strategy. (For more information on this distinction, view our recent webinar entitled: Compensation Strategy and Business Strategy, An Interdependent Relationship.)  Walmart and Four Seasons Hotels have very different business models, so their approach to pay would need to reflect that difference.  Presumably, your business will be equally distinct.  So in this category two essential issues need to be addressed: A)What outcomes reinforce the core virtuous cycles of your business model?  B)What kind of pay strategies will best reinforce those outcomes?
2. What kind of value-sharing approach best reflects the kind of partnership we want to have with our employees? I prefer the term value sharing to incentives because the latter implies that someone needs a carrot to become motivated.  Value sharing, on the other hand,  implies all stakeholders deserve to participate in the value they help create.  Company leaders must think in these terms as they approach the building of short and long-term rewards programs.  Such programs must be self-financing (no dollars paid unless results are produced at a sufficiently high level) on the one hand and yet meaningful to participants (employees want to see them achieved because the payout helps them fulfill their personal financial needs and goals) on the other.
3. What pay components will best foster a unified financial vision for growing the business?  This issue has to do with how employees will be paid as opposed to how much.  Addressing this issue forces a company to develop a basic rewards philosophy.  Where do you want to be vis a vis market pay for salaries?  How about for total compensation?  It asks a company to think about the elements of pay that will best foster an ownership mentality throughout the organization, so employees are empowered in their decision making and more instinctively act in the long-term interests of shareholders and all other stake holders.
4. What structure do we need to maintain to ensure our compensation strategies produce the desired results?  Structure has to do with organization and process.  A company needs to have a systemitized means of assessing performance and productivity and then “pivoting” in a different direction if necessary. The structure continues to keep strategy front and center with a constant eye on cost and productivity.  For most companies, this means there should be a compensation committee established with a regular meeting schedule (no less than twice a year) to review and make decisions about these issues. 
5. How can we communicate our rewards strategies in a way that best impacts the mindset of our employees?  If effective, a strategic approach to building rewards programs should result in more engaged employees.  This does not come by simply rolling out a great compensation plan.  Engagement is built over time through a reinforcement process that integrates the discussion about pay into an overall strategy and business plan review to which all stake holders are exposed. As employees come to work each day, there should be a clear connection in their minds between the following: A) The vision of the company–where it’s headed; B) The business model and strategy of the company–how it’s vision will be fulfilled; C) The role and expectations of the employee within that model and strategy–defining the stewardship, and; D) How the employee will be rewarded if he or she meets the expectations–including the range of pay potential.

Certainly, more could be added to that list.  However, if a company attempts to address even one of the five decisions summarized here they will naturally be lead to the other four.  You will see that they are really interdependent in nature.  Likewise, other core decisions will emerge such has what balance should there be between short and long-term value sharing plans, and what type of long-term rewards ”incentive” should a company adopt (equity sharing, profit pool, phantom stock, stock appreciation rights, etc.)?  Most will need help answering all of the questions that will emerge, but it must start with a foundational commitment to becoming more strategic in your approach to rewards development.

The promise is that, if incorporated, this list of five core decisions will help ensure that compensation will become an asset rather than a liability in your organization.

It is certainly cliche to say that change will be an ever present part of business life in the 21st century–and beyond.  However, cliche or not, many businesses haven’t surrendered to this truth enough to create a plan for managing change and finding the appropriate role of rewards in that process.  The reality is, most business leaders know how to talk about change, but don’t know how to build an integrated approach to addressing it through all levels of the organization.  And when it comes to compensation issues, these same leaders either put too much of a burden on rewards strategies to engineer the new culture they seek or they isolate the issue so completely that it can have no real measureable bearing on execution and results. 

In a recent article in Booz & Co.’s Strategy + Business Magazine entitled “Making Change Happen and Making it Stick,” authors Ashley Harshak, DeAnne Aguirre, and Anna Brown posit five key success factors to making change work in an organization.  I find this list to be in harmony with VisionLink’s philosophy about all of the elements that have to come together if any kind of purposeful, productive transformation is going to take hold in a company’s culture. Let’s look at their list and the corresponding role rewards should play in bringing about the improved outcomes you seek.

Five Key Success Factors

1. Understand and spell out the impact of the change on people.  Good leaders know how change impacts individuals and can speak to how a course alteration or revision will affect different populations within the organization. Creating clarity around this issue and relating it to the personal visions of employees is essential to alignment.  Leadership must must also communicate how the proposed changes relate to the shared vision and values of shareholders and other stake holders.   Similarly, rewards strategies that are introduced need to be relevant to the core philosophy guiding the change; and, if the new direction impacts pay, employees need to know how the new approach will affect their cash flow, security and/or wealth accumulation opportunities.
2. Build an emotional and rational case for change.  Most CEOs are pretty good at conveying the rationale behind the change that is being initiated.  They are less effective, however, at appealing to the emotional reasons employees should embrace a new direction. In their book Switch, the Heath brothers use the analogy of an elephant, a rider and a path to make a similar point. The rider is the rational part of our reaction to change, the elephant is our emotional core and the path is clarity about the course we need to follow.  In a compensation context, we encourage companies to make sure they build a rewards gameplan that will address both structure issues (impact on strategy, cost, productivity) and mindset issues (impact on clarity, partnership and engagement).  By doing so, they appeal to all three elements: the rider, the elephant and the path.
3. Ensure that the entire leadership team is a role model for the change. If companies want to nurture a performance culture, they must make sure that it starts at the top.  That’s why when we speak with companies about building a pay for performance approach to rewards, we suggest it begin with leadership and cascade down from there.  Change, if it is effectively engineered, should improve a company from being merely a wealth creator to becoming a wealth mulitplier, one where it becomes clear to everyone how value is magnified then shared.  This can’t happen if leadership doesn’t hold itself accountable, and management won’t feel fully accountable unless a good portion of their pay is subject to clear performance standards. Ultimately, those performance standards need to be aligned with the new course the company needs to take.
4. Mobilize your people to “own” and accelerate the change. Here, I quote from the authors directly: “The blunt truth is that most change initiatives are done ‘to’ employees, not implemented ‘with’ them or ‘by’ them. Although executives are pushing behavior change from the top and expecting it to cascade through the formal structure, an informal culture left to instinct and chance will likely dig in its heels.”  I can’t imagine how an organization can expect to affect meaningful change if its rewards systems and strategies make no attempt to help the workforce think more like owners.  This doesn’t mean equity needs to be shared.  It does mean, however, that how employees are paid should help them better understand what’s at “stake” and how they should think and execute as a result.
5. Embed the change in the fabric of the organization.  In this step, leadership needs to communicate the various people-oriented elements of the change and not just the structural components.  Continuity maps are good for this–charts and explanatory material that draw clear relationships between the different parts of the change effort and the role each person has in that process.  Compensation’s role in this is to help employee’s understand the complete value proposition that is associated with the “future organization” so there is a sense of partnership about bringing about its fulfillment.  We encourage companies to construct a Value Statement for key people in particular that brings together in one place all of the elements of their pay package (salary, short-term incentive, long-term incentive, retirement plan, etc.) with a five to 10 year projection of the opportunity.  This helps cement the concept of partnership and provides real clarity about what the future holds.  Such an approach embeds a vision of “what’s coming” in the minds and hearts of the company’s human resource.  Meaningful and measurable change will not occur if this vision doesn’t take hold.

As you consider the multitude of changes your business will need to live with over the coming years, I recommend you consider these guidelines in navigating your course.  I don’t promise it will be easy, but my experience is that world class performers learn to integrate this kind of approach consistently and effectively. In the words of Machiavelli: “Whosoever desires constant success must change his conduct with the times.”

Most business leaders are cost conscious, because they know that all expenses impact the proverbial bottom line.  As a result, when they consider compensation issues, they commonly think in terms of “managing costs.”  This perspective is revealed to us through statements or questions such as the following:

• I can’t afford to pay incentives right now.
• I’ll need to know what a long-term incentive plan will cost before I….
• What is the market rate of pay for these positions?
• How do I keep my payroll expense under control?

Cost is a large part of our focus when we are engaged to work with clients.  However, we try to help the business leaders we work with to look at costs in two potential contexts:

1. What are the “structural” costs associated with your rewards strategies?  This would include understanding and evaluating all of the known as well as hidden costs across the range of compensation and benefits strategies currently being offered. For example, hidden costs associated with welfare plan utilization, unclear fee sharing associated with 401(k) plan investment offerings and administrative services, and so on.
2. What are the “performance” costs associated with your rewards strategies?  Humm.  What do we mean by performance costs?  Read on.

One of the most costly issues a company can face is under performance.  This occurs when a business isn’t able to achieve sustained results because it either is attracting only good people when what it needs is great talent, or the people it has in key positions are not working in full alignment with the core business model and strategy of the company.  We see this over and over again. 

Too often CEOs are making cost containment decisions about rewards strategies that they believe are saving the company thousands of dollars.  Unfortunately, the issue is being evaluated in a silo and is not being measured against the performance standard that needs to be met.  The question shouldn’t be “how much” compensation are we or should we be paying?  The question needs to be “how” should we pay compensation; meaning, what forms of rewards should be included in our mix and what weight should they each be given to: a) attract the kind of talent we need for the performance level we are seeking, and, b) keep those people properly focused and achieving once they’re here.

So while we’re big proponents of evaluating and measuring structural costs, we believe bigger losses occur when companies don’t properly evaluate the performance costs associated with their compensation game plan.

To read more about this concept, click here.

The answer is yes…and no.  Some interesting research outlined in two recently published books offers evidence that key talent might not be so great were it not for the environment and resources offered by the company for whom they work.

In their book Clever, authors Rob Goffee and Gareth Jones make the point that talented people are as dependent upon the organizations in which they work as those entities are on them.  Their premise is that while premier people are not easily replaced in an organization, those individuals often fail to recognize that it is the company’s resources–other team members, intellectual capital, research access, etc.–that allows them to perform at the level they are and to find the fulfillment they enjoy.

In his book Chasing Stars, The Myth of Talent and the Portability of Performance, Boris Groysberg embellishes on this point with even more detailed research.  His findings indicate that performance is not as portable as individual talent sometimes thinks and a key employee’s results often sharply diminish when he or she  leaves the business for “greener pastures.”

Therefore what?  What influence should such findings have on the way companies approach their rewards systems?

I believe these findings support the VisionLink premise that all good compensation strategies should address the two, interdependent visions that exist within every business.  There is an ownership vision and an employee vision.  Because both have to be realized for the company to experience sustained success, high performing companies develop compensation strategies that build a sense of partnership with employees.  These organizations have a philosophy statement that indicates how value that is created in the organization will be shared and what balance will be struck between guaranteed and at risk pay, and short-term versus long-term incentives.  Specific plans growing out of such an environment reinforce the interplay between talent, resources and results, and tie rewards to appropriate outcomes that can’t be achieved solely through individual performance.

For more information on how to address the question posed here from a compensation perspective, tune into our upcoming webinar entitled, “How to Build Long-Term Value for Key Producers.”  The webinar will be broadcast on February 22.  Click here to enroll.

As a follow up to the blog I posted at the end of last year, I would like to offer some hints for avoiding costly mistakes in your compensation planning for 2011.  This post is intended to “fill in the blanks” on the three imperatives I introduced in my last writing.

Over the course of our careers, my partners and I have been in literally hundreds of businesses. Through that combined experience, we have seen much that is good–but probably more that, well…isn’t.   Here’s what we’ve learned you must do to avoid the eight most common mistakes businesses make when developing pay strategies.

1. Have a Clear Plan Purpose.  The question that should be asked before you engineer any new compensation strategy is: “How can we ensure a plan design that will positively contribute to the fulfillment of our company’s vision and strategic plan?”  The mistake to be avoided here is having no strategic context for your plan.
2. Create a Well-Defined Plan Blueprint and Tested Financial Model.  Once you are ready to begin the construction of a new plan design, you should ask the following question: “What will ensure the plan will properly address all financial and legal considerations without forfeiting creativity and innovation?”  The mistake to be avoided here is a lack of creative value in your plan and untested or measured outcomes.
3. Have a Celebratory Plan Launch.  When you get ready to roll out your new plan, be sure you are able to answer this question: “How can we know that the plan rollout reinforces the company vision while building participant confidence and enthusiasm?” Here, the mistake to be avoided is a lack of employee enthusiasm and buy-in as well as having no context for the plan.
4. Define a Clear Operations Strategy.  Once a plan has been introduced, the first of five new issues to be addressed evokes this question: “What roles and procedures have to be defined and communicated to ensure effective internal communication and administration of the plan?”  Here you are seeking to avoid the mistake of an unnecessary or unanticipated burden on the company’s administrative team.
5. Institute an Effective Plan Communications and Marketing Strategy.   This is the second of the five post-rollout issues that have to be addressed. At this stage, the question to be answered is: “What can be done to ensure meaningful, ongoing communication of the value of the plan to all participants?”  The mistake to be avoided by answering that question is disenchanted employees.
6. Develop a Compliance Plan.  This is number three on our post-rollout “to do” list and the question that needs to be answered is:  “How can we be sure that we are fulfilling all legal and regulatory responsibilities for the plan?”  The obvious mistake to be avoided by addressing this issue is running afoul of regulatory requirements that can lead to stiff penalties or worse.
7. Have Consistent Financial Oversight of the Plan. This is our fourth post-rollout imperative and it is set up by answering the following question: “How will we ensure the plan is being managed financially and is producing an appropriate return on our investment?”  Here, the company is hoping to avoid the mistake of having no real measure of its return on human capital or its compensation investment.
8. Measure Line of Sight Consistently and Frequently.  This is the last of the issues to be addressed once a plan has been launched and leads to one of the most important questions of all: “How will we be sure to keep the plan in line with the evolution of the company vision and business strategy?”  With this final step, you are trying to avoid the mistake of having the plan move off course and lose its relevance and impact.

So, there you have it.  A sure way to avoid the pitfalls too many fall into.  Easier said than done?  Of course–but achievable. 

To learn more about these eight steps, consider tuning into our webinar broadcast later this month.  It will address this topic in detail in a one hour session on January 25.  Click here to register now for this event.

The most recent edition of the Harvard Business Review carries an article that I recommend, particularly at a time most companies are engaged in planning and budgeting for the new year.  Authored by Robert Simons, it is entitled Stress-Test Your Strategy and it poses seven searing questions companies should ask themselves to home in on critical issues to address in this or any economy:

1. Who is your primary customer?
2. How do your core values prioritize shareholders, employees and customers?
3. What critical performance variables are you tracking?
4. What strategic boundaries have you set?
5. How are you generating creative tension?
6. How committed are your employees to helping each other?
7. What strategic uncertainties keep you awake at night?

The article points out that a stress test is an assessment of how a system functions under severe or unexpected pressure.  Mr. Simons points out, “By asking tough questions about your business, you can identify confusion, inefficiency, and weaknesses in your strategy and its implementation. As Peter Drucker once warned, ‘The most serious mistakes are not made as a result of wrong answers. The truly dangerous thing is asking the wrong questions.’ ”

With that in mind, I would pose one additional question as a capstone to those listed above:

Do your current rewards strategies effectively communicate to your key people what you want to have happen in each of those seven areas?

If your answer to that question is no, there is important work to do.  I’ve linked two of the questions above to articles and webinars we have recently published that will help you think through how to tie these issues together.

Commit to making 2011 the year you get compensation right and you will create a more unified, passionate and engaged workforce.